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Search Engine Advertising

After users enter a search term, internet search engines, such as Bing or Google, usually display two sets of search results according to their proprietary algorithms: so-called organic results and search engine advertisements. Organic results are the outcome of the index retrieval and relevance ranking applied by a search engine. The impression of both the organic results and of the search advertisements is free of charge. However, for search engine advertisements, advertisers bid a value that they are willing to pay for each click on their advertisement. The adverts are then positioned according to an automated generalized second-price auction (Edelman et al., 2007; Varian, 2007). Besides the bid amount, the auctioning mechanism may also incorporate additional quality criteria (Aggarwal et al., 2008; Balachander et al., 2009; Chen et al., 2009; Gonen & Vassilvitskii, 2008). Advertisers are only charged if a prospective consumer clicks on the advertisement. The user is then redirected to a target page provided by the advertiser, the so-called landing page. From the perspective of an advertiser, this user visit is positive if it leads to a predefined result – generally referred to as a conversion. A conversion may vary for different advertisers, e.g. a visit to a certain page, requesting information material, registering as a new customer or concluding an online transaction. Figure 1 displays this ideal process of search engine advertising.

Key Terms in this Chapter

Strategic Bidding: A behavior to increase the price for competing advertisements by increasing the bid to an increment below the next highest bid. Strategic bidding increases the advertising costs for the competitor without paying more oneself.

Long Tail: Summarizes the idea to use many objects with low volume and a positive profit margin to generate profit. In search engine advertising, the long tail refers to a large number of search keywords that have low search volume and low competition.

Search Behavior: All actions of a user to satisfy the search intent. In the online sphere, the search behavior primarily refers to the use of search engines.

Retargeting: Addressing an individual after a previous contact did not lead to a conversion.

Conversion: A measure to record a predefined action on a Web site, e.g., a website visitor becoming a paying customer.